ECONOMICS OF POWER GENERATION

LOAD CURVES
 The load on power plants will always be changing with time
and will not be constant because consumer of electric
power will use the power as and when required.
 Load curve is graphical representation between load in kW
and time.
 It shows variation of load on the power station.
 If the time is in hours then the load curve is known as daily
load curve.
 If the times is in days, the load curve is known as monthly
load curve and if the time is in months, the load curve is
known as yearly or annual load curve.
 The daily load curve will be different for different type of
consumers and different localities. These load curves may
show different pattern during summer, winter and rainy
season.
 The combined daily load curve for all types of
consumers is shown in figure (a) and the
approximated curve for simplicity is shown in figure
(b).
LOAD DURATION CURVES
 Load duration curve is simply a re-arrangement of
daily load curve with loads set up in descending
order of magnitude.
 The load duration curve indicates for how many
hours a certain load is required in a day.
TERMS AND DEFINITIONS
1. Connected load:
connected load is the sum of ratings in kilowatts (kW) of
equipment installed in the consumer’s premises.
The connected loads in the premises of a consumer are
shown in figure.
Total load connected in the consumer’s premises:
= 40 + 1000 + 60 + 40 + 20 + 500 + 25 + 60 = 1745 W
2. Demand:
The demand of an installation or system is the
load that drawn from the source of supply at the receiving
terminals averaged over a suitable and specified interval
of time. Demand is expressed in killowatts (kW) or other
suitable units.

3. Maximum demand or Peak load

It is the maximum load which a consumer uses at
any time. It can be less than or equal to connected load.
If all the equipment fitted in consumer’s premises
run to their fullest extent simultaneously then the
maximum demand will be equal to connected load. But
generally the actual maximum demand is less than the
connected load because all the devices never run at full
load at the same time.
(4) Demand factor:
It is defined as the ratio of maximum demand to connected load.

(5) Average load:

The average load is calculated dividing the area under the load
curve (energy in kWh) by the time period (24 hours) considered
to draw the load curve.
Area under load curve Energy consumed 24 hrs
∴ Average load = =
24 24
(6) Load factor:
It is defined as the ratio of average load to maximum or peak
load. Load factors and demand factors are always less than unit.
Load factor play an important part on the cost of generation per
unit. The higher the load factor the lesser will be the cost of
generation per unit for the same maximum demand.
Average load
∴ Load factor = Maximum load
7. Diversity factor:
The diversity factor is the ratio of the sum of the maximum
demands of the individual consumers and simultaneous
maximum demand of the whole group during a particular
time.
∴ Diversity factor
Sum of individual maximum demands
=
Simultaneous maximum demand at a given time

Diversity factor is always greater than unity.

8. Plant Capacity factor:

It is defined as the ratio of actual energy produced in kilowatt
hours (kWh) to the maximum possible energy that could have
been produced during the same period.
Average load x 24 Average load
∴ Plant capacity factor = =
Plant capacity x 24 Plant capacity
 The difference between load and plant capacity factors
is an indication of reserve capacity.
The capacity factor shows how near the plant runs to its full
ratings.
The high values of demand factor, load factor, diversity factor
and capacity factor are always desirable for economic operation
of the plant and to produce energy at a cheaper rate.

9. Plant use factor:

It is defined as the ratio of energy produced in a given time to
the maximum possible energy that could have been produced
during the actual number of hours the plant was in operation.
It shows the extent to which the plant capacity is used to meet
the peak demand.
Plant use factor =
Annual energy produced
capacity of plant x No. of hours plant is in operation during year
IMPORTANCE OF LOAD FACTOR AND
DIVERSITY FACTOR
(1) Load factor
 Load factor is the ratio of average load to maximum load
on the power plant.
 The load factor will increase if the average load
increases without the increase in maximum load. Thus,
the total number of units of energy generated (kWh) at
higher load factor would increase.
 But the annual fixed charges per unit of energy
generated would reduce with the increase in load factor.
 Hence, the annual fixed charges per unit of energy
generated would reduce with the increase in load factor.
As a result the overall cost per unit of energy generated
reduces.
(2) Diversity factor
BASE LOAD AND PEAK LOAD POWER PLANTS
COST OF POWER PLANT
 The cost analysis of power plant includes fixed cost
and running cost.
1. Fixed cost:
(i) Land, building and equipment cost:
 Cost of land and building will depend upon the
location of the plant. If the plant is situated near the
cities, the land will be costlier than the case if it is
located away from the cities.
 The cost of equipment or the plant investment cost
is usually expressed on the basis of kW capacity
installed.
(ii) Interest:
 All the enterprises need investment of money and
this money may be obtained as loan, through bonds
and shares, or from owners of personal funds.
 The interest on the capital investment must be
considered because otherwise if the same amount
was not invested in power plant, it would have
earned an annual interest.
 A suitable rate of interest must be considered on
the capital invested.
(iii) Depreciation cost:
 Depreciation accounts for the deterioration of the
equipment and decrease in its value due to
corrosion, weathering, and wear and tear with use.
 It also covers the decrease in value of equipment
due to obsolescence. It is required to replace the
generating plant machinery after its expiry of useful
life.
 Therefore, a certain amount is kept aside every
year from the income of the plant to enable the
replacement of plant at the end of its useful life.
This amount is called depreciation amount.
 The following methods are used to calculate the
depreciation amount:
 Straight line method
 Sinking fund method
 Diminishing value method
Let P = Initial cost of plant
S = Salvage value at the end of the plant life,
n = Plant life in years,
r = Annual rate of interest on the invested
capital,
A = The amount to be kept aside per year as
depreciation amount.
(a) Straight line method:
 According to this method, annual amount to be set aside is
calculated by using following formula:
P-S
A=
n
 In this method, the amount set aside per year as depreciation
fund does not depend on the interest it may draw. The interest
earned by the depreciation amount is taken as income.
 This method is commonly used because of its simplicity.
(b) Sinking Fund Method:
 In this method, the amount set aside per year consists
of annual installations and the interest earned on all
the installments.
 Depreciation amount set aside at the end of first year = A,
 Depreciation amount at the end of second year = A + interest on A
= A + Ar = A(1+r)
 Depreciation amount at the end of third year
= A (1+r) + interest on A(1+r)
= A (1+r) + A(1+r) r = A (1+r)(1+r) = A (1+r)2

∴ Amount at the end of nth year = A (1+r)n-1

Total amount accumulated in n years =

Sum of the amounts accumulated in n years
P – S = A + A(1+r) + A (1+r)2 + ………+ A (1+r)n-1
y = A [1 + (1+r) + (1+r)2 + (1+r)3 +…….+ (1+r)n-1] ………… (1)
(∵ Taking P – S = y)
Multiplying the above equation by (1+r), we get

y(1+r) = A[(1+r) + (1+r)2 + (1+r)3 + ……+(1+r)n] …..…(2)

Subtracting equation (1) from equation (2), we get

y.r = [[(1+r)n – 1]A

 1+r n -1 
y =  A
 r 

  r+1 n -1 
  P - S =  A
 r 

 r 
 A=    P-S
 (1+r)  1
n
(c) Diminishing value method:
 In this method the deterioration in value of equipment from
year to year is taken into account and the amount of
depreciation calculated upon actual residual value for each
year. It thus, reduces for successive years.
Let x % of amount is set aside per year on the initial cost of plant at the end
of each successive years.
Initial cost of the plant = P
𝑥
Depreciation amount at the end of first year = P x
100
P.x 𝑥
Balance plant cost = P - =P 1−
100 100
Depreciation amount at the end of second year,
𝑥 𝑥
=P 1− .
100 100
Balance plant cost at the end of second year
𝑥 𝑥 𝑥
=P 1− − P 1− .
100 100 100
𝑥 2
=P 1−
100
 Depreciation amount at the end of third year,
𝑥 2 𝑥
=P 1− .
100 100
Depreciation amount at the end of n year,
𝑥 n-1 𝑥
=P 1− .
100 100
 This can be explained by the following example:
Say the equipment cost is 20000 Rupees. The amount
set aside is 10% of the initial cost at the beginning of the year
and 10% of the remaining cost with every successive year.
Therefore
balance plant cost at end of first year
10
= 20000 - x 20000 = 18000 balance
100
the balance plant cost at end of second year
10
= 18000 - x 18000 = 18000-1800
100
= 16200 balance
balance plant cost at end of third year
10
= 16200 - x 16200 = 14580 balance.
100
(iv) Insurance:
The costly equipment and the buildings must
be insured for the fire risks, riots etc. A fixed sum is
set aside per year as insurance charges. The
insurance charge depends upon the initial cost of the
plant and the insurance coverage.

(v) Management cost:

This includes the salaries of management,
security and administrative staff, etc. working in the
plant. This must be paid whether the plant is working
or not. Therefore, this is included in fixed charges of
the plant.
2. Running cost:
The running cost or operating cost of the
power plant includes the cost of fuel, cost of
lubricating oil, direct labour cost, cooling water and
number of consumable articles required. The wages
required for supplying the above material are also
included in the operating cost of the power plant.

(i) Fuel cost:

In a thermal power plant, fuel is the heaviest
item of operating cost. The selection of the fuel and
the maximum economy in its use are, therefore, very
important consideration in thermal power plant
design. The cost of fuel includes not only its price at
the site of purchase but its transportation and
handling cost also.
(ii) Oil, Grease and Water cost:
The cost of various consumables like oil,
grease, etc. and water cost are also proportional to
the amount of power generated. These costs increase
with an increase in life of the plant as the efficiency of
the power plant decreases with the age.
The total cost of power generated is the sum of
fixed charges and operating charges.
TARIFF FOR ELECTRIC ENERGY
 The electricity generated is to be supplied to the
consumers, the total cost of generation and profit
as to be recovered from the consumers. The rate of
energy sold to the consumers depend on the type
of consumers as domestic, commercial and
industrial.
 The rates depend upon the total energy consumed
and the load factor of the consumer.
 The tariff (energy rates) chosen should recover the
fixed cost, operating cost and profit etc. incurred in
generating the electrical energy.
 General rate form. The general type of tariff can be
represented by the following equation:
z = ax + by + c
Where z = Total amount of bill for the period considered
x = Maximum demand in kW
y = Energy consumed in kW.h during the period
considered.
a = Rate per kW of maximum demand.
b = Energy rate of kWh.
c = Constant amount charged to the consumer during
each billing period. This is independent of demand or total
energy because a consumer that remains connected to the line
incurs expenses even if he/she does not use energy.
 Various type of tariffs are as follows:
(1) Flat demand rate:
 It is expressed by the expression
z = ax
i.e., the bill depends only on the maximum demand irrespective
of the amount of energy consumed.
 It is based on the customer’s installation of energy consuming
devices which is generally denoted by so many kW per month or
per year.
 It is probably one of the early systems of charging energy rates.
 It was based upon the total number of lamps installed and a fixed
number of hours of use per year. Hence the rate could be
expressed as a price per lamp or unit of installed capacity.
 Its use is very common to supplied to irrigation tubewells, since
the number of hours for which the tubewell feeders are switched
on are fixed. The charge is made according to horse power of the
motor installed.
 In this form of tariff the unit energy cost decreases
progressively with an increased energy usage since the total
cost remains constant.
 By the use of this form of tariff the cost of metering equipment
and meter reading is eliminated.
(2) Straight line meter rate:
 It is expressed in the form

z = by
 This is simplest form of tariff. Here the charge per unit is
constant. The charges depend on the energy used.
 This tariff is sometimes used for residential and
commercial consumer.
 The variation of bill according to the variation of energy
consumed.
 Advantage: Simplicity.

 Disadvantages: 1. The consumer using no energy will

not pay any amount although he has incurred some
expenses to the power station.
 2. This method does not encourage the use of electricity
unless the tariff is low.
(3) Block meter rate:
 The straight line metre rate charges the same unit price
for all magnitudes of energy consumption.
 The increased generation (or consumption) spread the
item of fixed charge over a greater number of units of
energy and , therefore, the price of energy should
decrease with an increase in consumption.
 To overcome this difficulty, the block metre rate is used.
In this method, the charging energy is done as stated
below:
z1 = b1 y1 + b2 y2 + b3 y3 + …
where b3 < b2 < b1 and y1 + y2 + y3 + …… = y
(total energy consumption)
the level of y1 , y2 , y3 and so on is decided by the
management to recover the capital cost of the plant.
 This tariff is very commonly used for residential and
commercial customers.
(4) Two-part tariff or Hopkinson demand rate:
 This method of charging was proposed by Dr. John
Hopkinson in 1892.
 In this tariff the total charges are based on the maximum
demand and energy consumed. It is expressed as
z = ax + by
 This method requires two metres to record the
maximum demand and the energy consumption of the
consumer.
 This form of tariff is generally used for industrial
customers.
(5) Three part tariff or Doherty rate:
 This method of charging was proposed by Henry L.
Doherty.
 According to this method of tariff the consumer pays
some fixed amount in addition to the charges for
maximum demand and energy consumed.
 The fixed amount to be charged depends upon the
occasional increase in fuel price, rise in wages of labour
etc.
 It is expressed by the expression
z = ax + by + c
 When generating capacity is less than the actual
demand then the customers are discouraged to use
more power.
 Upto certain power consumption, the charging rate is
fixed say 1.5 Rs./kWh units and if it exceeds than this,
the charge is rapidly increased as 2 Rs./kWh. This is
unfortunate but very common in India.